During the current year, Black Corporation incurred the following expenditures which should berecorded either as operating expenses or as intangible assets:a. Expenditures were made for the training of new employees. The average employee remainswith the company for five years, but is trained for a new position every two years.b. Black purchased a controlling interest in a vinyl flooring company. The expenditure resultedin the recording of a significant amount of goodwill. Black expects to earn above-averagereturns on this investment indefinitely.c. Black incurred large amounts of research and development costs in developing a dirt-resistantcarpet fiber. The company expects that the fiber will be patented and that sales of the resultingproducts will contribute to revenue for at least 25 years. The legal life of the patent, however,will be only 20 years.d. Black made an expenditure to acquire the patent on a popular carpet cleaner. The patent had aremaining legal life of 14 years, but Black expects to produce and sell the product for only sixmore years.e. Black spent a large amount to sponsor the televising of the Olympic Games. Black’s intentwas to make television viewers more aware of the company’s name and its product lines.InstructionsExplain whether each of the above expenditures should be recorded as an operating expense or anintangible asset. If you view the expenditure as an intangible asset, indicate the number of yearsover which the asset should be amortized, if any. Explain your reasoning.
During the current year, Black Corporation incurred the following expenditures which should be
recorded either as operating expenses or as intangible assets:
a. Expenditures were made for the training of new employees. The average employee remains
with the company for five years, but is trained for a new position every two years.
b. Black purchased a controlling interest in a vinyl flooring company. The expenditure resulted
in the recording of a significant amount of
returns on this investment indefinitely.
c. Black incurred large amounts of research and development costs in developing a dirt-resistant
carpet fiber. The company expects that the fiber will be patented and that sales of the resulting
products will contribute to revenue for at least 25 years. The legal life of the patent, however,
will be only 20 years.
d. Black made an expenditure to acquire the patent on a popular carpet cleaner. The patent had a
remaining legal life of 14 years, but Black expects to produce and sell the product for only six
more years.
e. Black spent a large amount to sponsor the televising of the Olympic Games. Black’s intent
was to make television viewers more aware of the company’s name and its product lines.
Instructions
Explain whether each of the above expenditures should be recorded as an operating expense or an
intangible asset. If you view the expenditure as an intangible asset, indicate the number of years
over which the asset should be amortized, if any. Explain your reasoning.
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